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# Bank Reconciliation

Tanner Companys April 1, 2010 pre-reconciliation cash balance on their books was \$35,000. While preparing the April 1 bank reconciliation, Tanner determined that outstanding checks total \$11,000, deposits in transit total \$7,000 and bank service charges are \$50. How much was Tanners April 1, 2010 cash balance per bank statement? Book balance Less: Service Fee Deposits in-transit Plus: Outstanding Checks Bank Balance 35,000 (50) (7,000) 11,000 38,950

Sideline Company reported net income for 2013 of \$70,000 and in 2014 of \$84,000 (both after income taxes at a 30% rate). It was discovered in 2014 that the ending inventory for 2013 was understated by \$2,000 (before any income tax effect). Calculate the correct net income (after income tax of 30%) for 2013 and 2014 2014
Beginning inventory*

2013 Correct

U \$2,000

## Cost of goods available Ending inventory*

U \$2,000
Correct U \$2,000

Correct
U \$2,000 O \$2,000 U \$2,000 U \$2,000 U \$600 (= 2,000 x .3) U \$1,400
2013: 70,000 + 1,400 UNDERSTATEMENT = 71,400

## Cost of goods sold

Gross margin Income before income taxes Income tax expense Net income

O \$2,000
O \$2,000
O \$600 (2,000 X .3)

O \$1,400

## 2014: 84,000 1,400 OVERSTATEMENT = 82,600

LIFO RESERVE:
QV-TV, Inc. provided the following items in their footnotes for the year-end 2010: Cost of goods sold was \$22 billion under FIFO costing and their inventory value under FIFO costing was \$2.1 billion. The LIFO Reserve for year-end 2009 was a \$0.6 billion credit balance and at year-end 2010 it had increased to a credit balance of \$0.8 billion. How much is LIFO inventory value at year-end 2010? How much is 2010 COGS expense under LIFO?

LIFO Reserve
FIFO
Beginning Inventory

LIFO

LIFO Reserve
.6 billion
LIFO Reserve increased by .2 which = difference in COGS Expense

Ending Inventory

## 2.1 billion 22 billion

?
\$2.1 - .8 = 1.3

.8 billion

COGS Expense

?
\$22 + .2=22.2

LIFO inventory (\$1.3 billion) = FIFO inventory (\$2.1 billion) - LIFO reserve (\$0.8 billion) LIFO COGS 22.2 billion = FIFO COGS (\$22 billion) + change in LIFO reserve (\$0.2 billion)

## Sample A/R and Bad Debt Expense Problem:

Burnap Company has performed the following year-end analysis of its accounts receivable:
Total 1-30 Days \$72,000 \$45,000 31-60 Days \$14,000 61-90 Days \$8,000 Over 90 days \$5,000

The company had sales of \$850,000 of which 20% were cash sales. As of year-end, the balance in Allowance for Uncollectible Accounts before adjusting for bad debts was a \$400 credit. Burnap Company has estimated the following bad debts percentages:
1-30 days 31-60 days 61-90 days Over 90 days Total Credit Sales 6% 15% 40% 75% 1.5%

1. Provide the journal entry for bad debt expense using Aging of A/R method and provide the A/R presentation on the B/S 2. Provide the journal entry for bad debt expense using Percentage of Credit Sales method and provide the A/R presentation on the B/S

## Over 90 days 5,000 .75 3,750

Allowance for Uncollectible

## \$11,750 is the amount of A/R

you estimate is at risk; this is your desired Ending Balance in the Allowance account

## 400 Beg Bal 11,350 11,750 End Bal Income Statement

Bad Debt Expense 11,350 Allowance for Uncollectible Accts 11,350 To reserve for uncollectible accounts
Balance Sheet Presentation: Accounts Receivable 72,000 Less Allowance (11,750) Net A/R 60,250

Balance Sheet

Bad Debt Expense using Percentage of Sales method: Credit Sales: 680,000 (850,000 total sales * .80 credit portion) X % of bad debt: x .015 Bad Debt Expense 10,200
You will record bad debt expense as calculated, disregarding the existing balance in the Allowance account:

Accounts Receivable

72,000

## 400 Beg Bal 10,200 10,600 End Bal

Income Statement Bad Debt Expense 10,200 Allowance for Uncollectible Accts 10,200 To reserve for uncollectible accounts

## 72,000 (10,600) 61,400

Balance Sheet

Hewitt Company had sales during February 20X5 of \$29,000. During the month, the company had purchases of \$17,000. At February 1, 20X5, the company had inventory of \$4,500. Assuming the company has a gross profit percentage of 40%, what is the estimated ending inventory for Hewitt Company at February 28, 20X5?

Sales Cost of goods sold equation: Begin Inventory, Feb 1 +Purchases =Cost of goods available for sale -End Inventory, Feb 28 (Plug) =Cost of goods sold, 60% of \$29,000 Gross Profit Percentage, 40% of \$29,000

## \$29,000 \$4,500 \$17,000 \$21,500 x? = 4,100 17,400

\$ 11,600

Warranty Liability
At the beginning of 20X4, Computers R Us had a liability for warranties of \$17,500 on the books. During 20X4, Computers R Us had sales of \$205,000. The company estimates that the cost of servicing products under warranty will average 2.5% of sales. Expenditures (all in cash) to satisfy warranty claims during 20X4 were \$4,800, of which \$2,500 was for products sold in 20X4. Compute the December 31, 20X4, ending balance in the Liability for Warranties account.

Beginning balance Additions for 20X4 sales Reductions for services provided

## \$17,500 5,125 (4,800) \$17,825

Given the following data, what is cost of goods sold as determined under the LIFO vs. FIFO method :

## Sales Beginning inventory Purchases

350 units at \$35 per unit 140 units at \$15 per unit 400 units at \$20 per unit

COGS using LIFO methodology: prices assigned are most recent purchases 350 units sold * \$20 = 7,000 COGS using FIFO methodology: prices assigned are oldest purchases (140 units sold * \$15 = 2,100) + (210 units * \$20= 4,200) = 6,300